Equities and the Economy:

More of the same yesterday. Nothing. The Dow closed down 19 at 18,142, the S&P 500 closed flat to Friday at 2,126 and the Nasdaq fell a single digit to 5,189. It really does look like investors want to get the election behind them before making any material investment decisions. Yesterday was the last day of the month and the Dow and S&P have now closed lower, albeit marginally, for three consecutive months. The Nasdaq also closed lower for the month which snapped a three month winning streak.

Moving on to the economic news from yesterday, the Commerce Department reported that consumer spending rose 0.5% in September which was better than expectations of 0.4%. Folks bought a lot of autos and durable goods for those components rose a surprisingly strong 1.5% in that month. As we all know, consumer spending accounts for 70% of U.S. economic activity (GDP) so this data point is important. Embedded in the report was another piece of data I focus on and that is the personal consumption expenditure index which rose 1.2% on an annual basis with core PCE up 1.7% for the 12 months period. Both came in at expectations. So why is this data point important to me? Because the PCE is the Fed’s preferred measure of inflation, i.e. looked at for setting monetary policy, i.e. interest rates. Speaking of the Fed, the FOMC meets today and tomorrow. Don’t expect a change in interest rates. Folks expect that to happen at next month’s meeting.

So take one guess on what equities are doing this morning. You got it. Nada. The Dow is up a meaningless 3 points.

Oil

On the last day of October oil prices closed at the lowest level for the month. WTI fell $1.84, 3.8%, settling at $46.86 and Brent closed down $1.41, 2.8%, at $48.30. Prices are currently only about 5% higher than before OPEC announced it was reducing output. Traders simply do not believe OPEC and non-OPEC countries will be able to come to an agreement on production cuts. At the meeting in Vienna over the weekend non-OPEC members Azerbaijan, Brazil, Kazakhstan, Mexico, Oman and Russia all refused to commit to cut or even freeze production until there was an agreement among OPEC member states. And that don’t look like it’s gonna happen with Iraq and Iran insisting they be exempt from production cuts. Morgan Stanley said in a note that the recent discussions with non-OPEC countries aimed at increasing market confidence in achieving an agreement only succeeded in achieving the opposite.
OPEC officially meets November 30th and between now and then you can expect them to build up expectations of an agreement, but don’t buy into it.

I’m not going to leave you bulls without some hope. U.K.’s Barclays Bank predicted higher oil prices in 2017 regardless of the outcome of the OPEC meeting siting that the winter months should see large reductions in global stock levels leading to a much tighter market next year than in 2015 and 2016.

This morning the bulls are licking their wounds and WTI is up 6¢.

Courtesy of MDA Information Systems LLC

Natural Gas

The warm weather continues to ruin the bulls party with natty closing down 7.9¢ at $3.026. The market tried to rally in morning but was met with strong selling interest at the $3.15 level with the selling continuing through the rest of the day. Over the past few days the 11-15 day forecast shows the normal temperatures for mid-November from the Appalachians eastward, but that is doing nothing to stem the price fall for the December contract is down a whopping 13.2¢ this morning.

Like oil, I’m going to give you bulls something to grasp on to. The Cheniere LNG plant in Louisiana is back up and running after about 3 weeks of maintenance. Both trains one and two are now in full production with unit two starting up last month for a few days before being taken down. The LNG plant is sucking 1.3 Bcf/d, not an immaterial sum by anyone’s measure, and is expected to consume that much every day for the month.

Elsewhere

Continuing with this week’s “elections” theme.

• Here in America elections took place way before the Constitution was ratified. The English conducted voting soon after they landed in Virginia in the 17th century. Only white male adults who owned land could vote.

• In 1758, a young candidate in Virginia for the House of Burgesses footed a huge liquor bill to woo voters on Election Day. The candidate spent his entire campaign budget, 50 pounds, on 160 gallons of liquor to served 391 voters. His name was George Washington. He wasn’t setting a precedent. Buying votes with booze was already the custom in England.

• You wouldn’t recognize an Election Day 200 years ago. Not only were eating, drinking and parading common, votes could be conducted by a public voice vote. It wasn’t until the 1890’s that the Australian ballot, also known as the Secret Ballot, became commonly used in America.

• The Constitution did not spell out when Election Day was. The administration of elections was left up to individual states. States were left to pick their own election days, including when election for federal offices were held. That meant people could voter from April to December. However, any federal election involving the Electoral College needed to be resolved by mid-December.

• The weather and farming dictated when elections were held. In the 1800’s the agrarian economy was important and farmers wouldn’t travel until the harvest was over. Also, the onset of winter conditions in areas that had winter conditions made travel a problem so elections were set for late fall.

• Election Day wasn’t in a fixed day until the mid-19th century. In 1845 Congress established the first Tuesday after the first Monday in November as election day. The scheme allowed people to observe the Sabbath, travel to vote, and return home by Wednesday which was observed as Market Day.

• The formerly ubiquitous mechanical voting machine is extinct. It was phased out by 2010. Votes are now counted using digital voting machines or sometimes paper ballots that are optically scanned.

• The chance for “hanging chad” is almost extinct too. By 2012, punch card voting machines only accounted for 0.02% of machines used.